Sparta Report

Accounts UnPayable – China’s Dirty Bomb

One of my predictions for 2017 was America will come close to war with China. Part of the basis for that prediction is China’s aggression in the South China Sea, the other is the Global Financial Crisis of 2017. If you are only paying attention to the mainstream media, you are certainly clueless to the risks of in either area because the MSM has no intention of reporting inconvenient facts ever again. When it comes to Greece’s financing problems, Deutsche Bank’s weakening position or recent military exercises demonstrating a capability to close the South China Sea shipping lanes; there are at least alternative sites reporting facts. Let’s discuss a financial threat even the alternative news sites don’t have on the radar – Accounts UnPayable – China’s Dirty Bomb.

The Globalists love to tout the People’s Republic of China (i.e. Communist China) as the future of global growth for the rest of this century. They portray China as a market full of opportunities for foreign businesses to exploit to their profit. No one ever discusses the nitty-gritty aspects of doing business in China. The capital investment “sharing” program which requires a Chinese principal to hold 51% of the equity position for 0% of the upfront investment. The Chinese national serving as the principal is designated by the Chinese government. It’s a very cozy and very profitable arrangement for the government and the principal. The Chinese principal effectively controls the flow of money through the China registered corporation doing business in China. There’s an open secret about these Chinese corporations which is never discussed and is a guaranteed path to termination if anyone with one of the foreign corporations were to discuss it with anyone the corporation doesn’t deem need to know (more on this later).

In business outside of China, the number of days to payment of what accountants call Accounts Payable (i.e. the bills the company owes to others) is one of the key measuring sticks of whether other companies want to do business with a given company. Most accounts are negotiated with the expectation they will be paid by 30 days after the receipt of the invoice. A company that averages 45 days to pay is going to be a pain but may be worth it. A company that averages 75 days to pay is one many companies will avoid – they depend upon timely payment from the companies they do business with in order to keep the amount of money they have have on hand or borrow to a minimum. If a company goes past 90 days on a regular basis, the bulk of companies will STOP doing any business with them because the empirical track record shows they are financially shaky and may go out of business before their creditors can collect their money.

There’s a famous quote in business: “If you owe your bank a hundred dollars, you have a problem. But if you owe it $ 100 million, IT has a problem.”

The logic is pretty clear. The bank can afford to write off the $ 100 while pushing aggravation at you. The $ 100 million isn’t something the bank can write off easily and it can’t afford to make a public stink about it because people will see the bank as risky. On top of all the other fun in the world, China has an enormous problem with people and corporations desperate to move their money OUT of China and the Chinese goverment’s control. The latest estimate for 2016 “capital outflows” is $ 725 billion. Let’s put that in perspective with a baker’s dozen of American billionaires:

Bill Gates $75.00
Warren Buffett $60.80
Jeff Bezos $45.20
Mark Zuckerberg $44.60
Larry Ellison $43.60
Michael Bloomberg $40.00
Charles Koch $39.60
David Koch $39.60
Larry Page $35.20
Sergey Brin $34.40
Jim Walton $33.60
Alice Walton $32.30
S. Robson Walton $31.90

NOPE! They only total $555.80 billion

We would need a LOT of others to get the additional $ 170 billion and then ALL of them would be trying to move that amount of CASH out of the country at the same time.

While I have trust issues with everyone on the list above. it doesn’t sink to the level of believing they are GUTTING the CASH out of the businesses they own. If they tried to convert their wealth into cash, they have such large holdings they would cause a massive drop in the markets. Which means, the money flowing out of China has already been discounted compared to the assets it once came from in order to be electronically transferable.

OR … it has to be money which is already in cash form and intended to be transferred OUT of China – the money owed to foreign corporations OUTSIDE of China.

Back to the need to know open secret mentioned above. The Chinese corporations are terrible at paying money owed to the corporations they do business with or of which they are a nominal subsidiary.

How bad?

Anecdotal evidence suggests an average greater than 180 days for partial payment on their Accounts UnPayable. The outside corporation has to be EXTREMELY “well connected” to average below 180 days. In China, being “well connected” means someone in the Chinese Politburo has a reason to push others to make you happy. We will leave it to the readers to sort out what’s required to qualify for the EXTREMELY adjective.

If Chinese businesses just owed a few hundred million dollars, they have a problem. If Chinese businesses owe HUNDREDS of BILLIONS of dollars, then EVERYONE doing business with them has a problem.

A “dirty bomb” uses radioactive material and explosives to widely disperse the material and contaminate everything within it’s blast radius. When it comes to China’s Accounts UnPayable, the blast radius in terms of corporations owed money they are likely NEVER going to collect … is global.

If you are naive enough to think, “This isn’t possible! Companies would have to report these as ‘bad debts’ on their financials.” just remember WHO makes them issue the financial statements in the first place … and that they have “revised” financial reporting requirements in the wake of the 2008 Financial Crisis to pretty much equal the standards of Enron.

When will the Accounts UnPayable bomb go off?

Shortly after a major market downturn, when the drop in cash flow from paying customers can no longer hide the cash flow missing from China.